At present there are three common exit options for venture backed and bootstrapped startups: trade sale (most common), IPO (increasingly rare) and sale to a PE firm (growing). We need innovation here both in the existing options and by creating new ones that are a better fit for companies that have a vision/mission that is important to them above and beyond financial return. Such vision/mission doesn’t necessarily need to be of the obvious social good variety, but could also include “settling Mars.”
Here are some of possible vectors for that
1. Improve the IPO process by embracing a model similar to the open IPO process pioneered by Bill Hambrecht (see my rant about the current IPO process). Ideally combined that with a new stock marketplace that is more longterm oriented such as LTSE.
2. Have a Public Benefit Corporation successfully go public and show that having a mission enshrined in the charter is compatible with being publicly traded. As an extra hack on this, introduce a golden share that can block a conversion away from PBC status and have that share controlled by a non-profit.
3. Create large pools of patient capital that has a very long term outlook and is happy with long term slow capital appreciation and/or dividend yields. There is so much capital in the world seeking returns in the same overly crowded opportunities. Evergreen longterm funds could be an interesting alternative. Early investors and founders/employees would sell to these longterm funds, possibly over a period of time (and maybe using internal or controlled external secondary markets).
4. The large pools of patient capital – in addition to coming from existing concentrated wealth (individuals, insurance companies, pension funds, sovereign wealth funds, etc) could also have a crowd funding component or possibly be entirely crowdfunded at some future point.
5. To the extent that the startup is pursuing a token / blockchain based protocol, then investors and employees can be compensated with tokens. Eventually those tokens will become tradable and liquid. As we make progress on the underlying protocols this could be applicable to ever more companies higher up the application stack.
These possible innovations could be used by any startup but they are all particularly appealing for mission oriented ones. They all reduce the pressure of being measured by and living up to short term financial performance expectations. That would be a good thing for the world!
